A.M. Best Revises Outlook to Negative for Gerber Life Insurance Company

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of “a” of Gerber Life Insurance Company (Gerber Life) (White Plains, NY). Gerber Life was acquired in August 2007 by Nestlé SA (Nestlé) (Switzerland) [Swiss: NESN] from Novartis. Nestlé is a food and beverage conglomerate with operations in almost every country around the world.
In revising the outlook to negative, A.M. Best notes the deteriorating levels of statutory profitability within Gerber Life’s ordinary life line, a decline in risk-based capital resulting from substantial realized losses in its investment portfolio and a modest decline in new business sales during the second half of 2008. While Gerber Life continues to maintain a solid level of risk-based capital despite the 2008 decline, the company continues to maintain a sizeable unrealized loss position on its remaining investments. A.M. Best notes that the company has some exposure to structured securities, including residential and commercial mortgage-backed securities and other asset-backed securities. Although the majority of these securities are in the higher-rated tranches, A.M. Best believes that some of these securitized investments, especially within the commercial mortgage-backed sector, could be at risk of impairment over the near term.
The affirmation of Gerber Life’s ratings primarily reflects its solid level of risk-adjusted capitalization, good earnings diversity through is two primary uncorrelated lines of business and the favorable overall premium growth trends in its ordinary life product line. Utilizing the Gerber Products (Gerber) company logo, Gerber Life enjoys good brand recognition within the market place, which has benefited the company as it continues to focus on the juvenile life insurance market through its direct-to-consumer marketing strategy. As a result, the company has experienced favorable trends in premium production over the past five-year period in its core ordinary life line of business.
However, A.M. Best notes that new business sales declined modestly during the second half of 2008. A.M. Best believes that the company may be challenged to increase new sales in the near term due to the recessionary economic environment. In addition, operating profitability has declined substantially over the past five-year period due to increased marketing and acquisition costs, as well as other one-time costs associated with its divestiture from Novartis. While favorable operating results continue to be generated from Gerber Life’s group accident and health line business, A.M. Best will be monitoring the company’s ability to increase top-line growth while improving operating profitability in its core ordinary life product line going forward.

Military members may still be owed money from life insurance settlement

The Missouri Department of Insurance says military service members in the state may be owed some of the $2.3 million dollars still unclaimed from a national settlement in 2006 with a life insurance company.
Missouri was one of 46 states that settled with American-Amicable Life Insurance Company of Texas and two of its affiliates – Pioneer American Insurance Company and Pioneer Security Life Insurance Company.
The National Association of Insurance Commissioners (NAIC) has installed a search feature on its Web site, naic.org, allowing service members to enter their first and last name to see if they are eligible for compensation under the settlement. The link is on the left-hand side of the Web page and says “Military Servicemember Policyholder Search.”
The agreement between the insurance company and the states followed allegations that American-Amicable and its two affiliates violated insurance and consumer protection laws in the sale and marketing of life insurance products to members of the U.S. military.
“More than 14,000 service men and women nationwide are still owed money from this settlement, and it’s our hope that this online search feature will help them access the money they’re entitled to,” said John M. Huff, director of the Missouri Department of Insurance, Financial Institutions and Professional Registration (DIFP).
Consumers without Internet access can get assistance from the DIFP by calling the Insurance Consumer Hotline at 1-800-726-7390.
The Missouri Department of Insurance, Financial Institutions and Professional Registration (DIFP) is responsible for consumer protection through the regulation of financial industries and professionals. The department’s seven divisions work to maintain consumer confidence by examining and monitoring industries and professions and by establishing coherent and evolving policies. DIFP works to enforce state regulations both efficiently and effectively while encouraging a competitive environment for industries and professions to ensure consumers have access to quality products.

Senators Decry Flipping Of Life Insurance Policies

The ad shows how a murky and potentially risky market for life insurance has been pitched to vulnerable consumers, an Illinois regulator told a Senate panel yesterday.
Members of the Senate Special Committee on Aging yesterday expressed concern about dangers for senior citizens from what the hearing agenda described as "Betting on Death in the Life Settlement Market." Panel Chairman Herb Kohl (D-Wis.) said selling a life insurance policy to investors "can be fraught with possible hidden pitfalls."
Investors have discovered that there is money to be made from buying people's life insurance policies, paying the premiums, and collecting the eventual death benefits. The investors offer policyholders more than they could collect from the insurance companies for surrendering the policy. And in the case of policies that have no surrender value, they enable consumers to liquidate policies for cash instead of simply allowing coverage to lapse.
The strategy can pay off for investors because insurers price coverage on the assumption that many policyholders will stop paying premiums before any death benefits are triggered. By targeting people who aren't expected to live long, and keeping the policies in force until the insured dies, investors can beat insurers at their own game.
Much of the criticism at yesterday's hearing focused on a variant of the strategy in which promoters offer senior citizens enticements to take out policies just to flip them to investors. Seniors who do that "may not know that they are participating in insurance fraud," Kohl said.

Prudential discovered last year that, after Ohio passed a law prohibiting so-called stranger-originated life insurance, a 74-year-old woman was driven from her home in Cleveland to Pittsburgh to sign an insurance application, Prudential executive James Avery told the committee. The woman, who lived on Social Security and had a net worth of $2,000, was shocked and frightened when she learned from Prudential investigators that the policy had a death benefit of $9 million, he said.
It isn't clear how widespread such practices are today. The Tribune ad cited by the Illinois director of insurance, Michael T. McRaith, appeared in 2007. The firm that ran the ad, Phillip Roy Financial Services, wasn't involved in stranger-originated life insurance and never completed a conventional life settlement because it was "too late to the party" when the credit markets froze, company President Phillip Wasserman said in an interview.

Life Insurance Primer for Beginners

Life insurance seems like one of those things you'll get around to when you're "older," but the right policy can be a helpful financial tool for anyone who's earning a wage.

The Simple Dollar blog invites guest poster Ray from Financial Highway to break down the basics of life insurance—the three major types, their differences and costs, and why you might need them (other than the inherent inevitability of a certain life moment).
Here's Ray's elevator pitch on why life insurance isn't just something your dad
Because of its many options and overall flexibility, life insurance can be a powerful tool in your financial planning arsenal. Consider that life insurance can be used to pay for funeral costs, college tuition, mortgage payments, debts, and more. It can also serve as income replacement - providing your spouse and family with a greater sense of financial certainty.
Once you've read up on the different kinds and benefits of life insurance, try MSN Money's life insurance calculator to get an idea of what numbers you should start talking about when it's time to buy.

A Primer on Life and Disability Insurance

Death and disability are two of the most difficult things for a family to discuss. But insuring against both is an important part of safeguarding a family’s future. While most families have some form of life insurance, usually purchased at marriage or with the birth of children, disability insurance is not a given. But if one or both spouses become disabled during their working life, not having it is a far greater risk to family solvency. This is where disability insurance is important. This primer will examine the basics of both types of insurance.


Life Insurance
Life insurance comes in a variety of forms meant to accomplish a range of objectives, from providing for survivors to moving assets out of your estate. The prices for it depend not only upon how much coverage you want but also upon what type of policy you get, either for a finite period of time or indefinitely.
The first question you need to ask, though, is how much insurance do you need? There is not a clear answer on this because it depends on your expectations. The better question is this: What am I trying to provide for with life insurance? If your concern is your spouse, a common calculation is to take out a policy that will cover all living, personal and household expenses for at least one year. This allows the surviving spouse to grieve without worrying about bills, and it also gives the spouse a period to begin making decisions for life without you.
If there are dependent children, however, the amount of insurance you need increases. Again, the dollar value depends on several factors, including the age of your children and what you want to provide for them. The person who wants to send his three children to private school and private college is going to need a lot more than the person looking to provide for the basic needs of one child in public school.
In insurance, desire is something that does not always align with reality. How much life insurance you are going to get also depends on what you can afford in terms of premiums as well as how much insurance a company will sell you. Just because you want a $5 million policy and can pay the premiums on it does not mean a company will underwrite that amount. Like a loan to a person flush with cash, insurance companies would rather sell large policies to healthy people who are going to live for decades. This gives them time to turn your premiums into more than the face value of your policy. The person who is already sick but wants to provide for his family will, in all likelihood, struggle to get an adequate amount.
Now onto types of insurance.
TERM Term life insurance is a popular and relatively inexpensive form of insurance. It covers a person for a period of time, usually 20 years. During the term, if the insured dies, his heirs receive the full value of the policy. After the term expires, they get nothing. Furthermore, the policy never has an intrinsic value — unless the person dies during the term.
Term life, then, is a contract, not an investment, to buy peace of mind. It is a good for a particular period — say the time it takes for a child to mature and leave home — and will pay the insured’s heirs the full value of the policy if he dies, regardless of how long he has been making the payments.
One variant on this, offered by a few insurers still structured as mutual companies — where their policy holders actually own the company — is convertible term life. This starts out as basic term, with its comparatively low premiums for the amount of coverage. But within a set period of time, often the first 10 years, it can be converted to whole life. The premiums will increase but the person does not have to be screened again for insurance.
WHOLE Whole life insurance plays a dual role for many people. It is both insurance in the case of an untimely death as well as an estate planning tool for when that final day comes. It is also considerably more expensive than term life. The reason is that it has an intrinsic value, from which you can draw if you need the money. And whereas term life is for a period of time, whole life lasts in perpetuity, unless you stop paying the premiums or cash in the policy.
Since whole life is also an investment for some people, some companies offer the policy holders the option of selecting the underlying securities that back the death benefit. This adds a small element of risk to the eventual payout. While the value of the portfolio can, obviously, increase or decrease, the insurer sets a floor for how low its value can fall. While investment losses are capped there are other downsides. First, there are fees associated with the trading portfolios, which can also chip away at the policy’s value. And then there are those who believe that you can get better returns by investing on your own.
This is where you have to evaluate why you want a whole life policy. If it is to move assets out of your estate tax-free, then any additional upside is good. If it is to increase the amount you leave to your heirs through the underlying portfolio, then you may not see the increase that you expect during your lifetime. Buying term life for a greater amount is an option, though those prices increase as you get older (and closer to the point where the insurer is going to have to pay out). Regardless of the type of policy you select, the payment to your beneficiaries is tax-free.

Life Insurance Companies Safe From Financial Crisis

Life insurance companies around the world are going through difficult times following the onset of the global financial crisis ― AIG, the biggest insurer, practically collapsed. Life insurers here, meanwhile, are relatively better off due to strict regulation of derivate products, according to Korea Life Insurance Association Chairman and CEO Lee Woo-cheol. ``The life insurance industry is facing difficulties as the worsening economy has begun to affect it. They are having problems managing their assets amid interest rate falls, and monthly premium payments are falling. Some subscribers are canceling insurance policies and the solvency margin ratio has fallen. However, they are in much better shape compared with insurers in other countries,'' Lee said in an interview with The Korea Times. Indeed, figures have worsened for life insurance industry. Their net income for the third quarter of 2008 stood at 761 billion won, plummeting by 948.3 billion won from a year ago. The solvency margin ratio, which represents their fiscal soundness to pay insurance money, fell by 29 percentage points.However, life insurers here, though small in global scale, have successfully survived, thanks to strict regulation on life insurers' investment in derivative products. Life Insurance Industry Needs DeregulationThough regulations on derivative investments helped them withstand the global crisis, the life insurance industry needs deregulation from a broader perspective, according to Lee. This is true when one focuses on the imbalances in the financial industry, especially between insurers and banks. ``Banks, and securities and insurance companies are the three main pillars of the financial industry. However, the system has been focused on banks, and the insurance industry has had little support while regulation was tight.'' He said it needs a more rational regulatory system to become a future growth engine for the country.``After the financial crisis, banks strengthened their grip on the financial market,'' the chairman said, pointing out that while banks now have various income source including insurance product sales, insurers have been unable to diversify customer services. He said insurers should be allowed to provide payment and settlement services ― once they are permitted to do so, as the government plans, insurance subscribers will be able to pay utilities fees, credit card bills or transfer money through their insurance accounts. ``It is a global trend to allow non-bank financial businesses to offer payment and settlement services, as it gives customers more choices and induces market players to cut costs through competition,'' Lee said. Currently, banks levy up to 3,000 won in fees for transferring money to other banks. The chairman, however, was cautious about the introduction of general agencies that sell all kinds of financial products, including insurance ― life insurance products are much more complicated. ``Insurance products are long-term ones, covering risk and managing assets based on an analysis of the individual customer's needs and financial condition. Selling insurance with other financial products could lead to a flawed sales procedure.'' He said that an analysis on effects and consumer benefits should come first before allowing insurance products on their sales list.Lee also showed concern over insurance fraud, which is growing explosively, as fraudsters become cleverer, and more systematic and massive. ``It is estimated that 2.2 trillion won in insurance money was wasted due to fraud in 2006. This means each household is paying 140,000 won more in insurance premiums than they should.''Police and insurers caught 30,922 people engaged in insurance fraud in 2007. He said insurers should have more power to investigate insurance frauds. Life Insurers Contribute to the CommunityLife insurance companies around the world are actively engaged in social contribution programs, giving back part of their earnings to the community. Lee explained that life insurers here are running social contribution programs from various spheres, running their own programs as well as participating in joint programs by the industry. In November 2007, for example, life insurance companies here announced they would set up the Life Insurance Philanthropy Foundation, promising to raise 1.5 trillion won to contribute to the community over the next 20 years. The foundation donated 1.9 billion won to patients suffering from rare diseases and 860 million won to low-income senior citizens suffering from dementia. The association also donated one billion won to a campaign to prevent suicide, and 470 million won to solving the problem of low birth rates and giving medical treatment to premature babies. It also has given 9.7 billion won so far to organizations dedicated to activities for the public good.The association is also contributing to job creation, planning to hire 20,000 more salespeople this year. Insurance Essential in Aging SocietyLee said in a country like Korea which is seeing an unprecedented pace of aging, people need insurance policies. ``The population aged 65 or older reached 7.4 percent in 2001, categorizing the country as an aging society. It is expected to become an aged society by 2020 with the ratio reaching 15.1 percent,'' the chairman said.He pointed out, however, that the state welfare system here is not good enough to guarantee a stable life after retirement. He said that the life insurance industry makes up for the loopholes, providing insurance products such as whole-life, annuity and nursing insurances.As insurance policies are safety nets for the family economy, the chairman advised people not to cancel policies if they can. ``It is better to keep insurance policies especially when the economy is bad. I think life insurance is the means of practicing love for one's family and respect for life,'' Lee added.He recommended integrated insurance products, which protect against various risks in life such as disease, injury, and death or disasters at relatively small premiums. chizpizza@koreatimes.co.kr
Who Is Lee Woo-cheol?Lee is a widely respected leader in the financial sector, especially known for his gentleness, open-mindedness and modest manner. Born in Buyeo, South Chungcheong Province in 1948, he graduated from the prestigious Gyeonggi High School and majored in law at Seoul National University. He started his career in the public sector after passing the examination for higher civil service in 1975. After serving at key posts at the finance ministry, building up expertise on macro economics and the financial industry, Lee moved to the financial regulator job in 1998, and served as deputy governor at the Financial Supervisory Service. He started his three-year term as the chairman and CEO of the Korea Life Insurance Association from last December. He got masters degree in public administration from Harvard Kennedy School, and another degree in economics at the University of New York at Albany.

Irrevocable Life Insurance Trust: 5 Ways It Can Help With Your Estate Plan

What is an irrevocable life insurance trust (“ILIT”) and why would it be useful to me? This article explores the upsides and downsides of the “ILIT.” The author concludes that an ILIT is both a cost-effective and powerful tool for providing liquidity, paying estate tax, avoiding Generation Skipping Transfer Tax (GSTT), protecting beneficiaries from creditors, and for business owners, keeping a business in the family.
An ILIT is an irrevocable trust that holds life insurance. Its primary purpose is to keep life insurance proceeds out of the estate of the settlor. But it can also have a number of other purposes. Below are five reasons why one might consider an ILIT:
First Reason: No Loss of Control over Income-Producing Assets First, an ILIT is an attractive alternative to other estate planning strategies that involve transferring substantial amounts of assets out of one’s estate. Grantor Retained Annuity Trusts (GRATs), Charitable Lead Trusts (CLTs), and other trust arrangements may involve the transfer of valuable income producing or business assets that most if not all would be hesitant to transfer out of their control (not to mention that the ILIT usually costs less). Yet, transferring a life insurance policy comes more easily: While premiums must be paid, the proceeds are only payable to beneficiaries upon death. Thus, there is not a great fear that transferring the policy would deprive the owner of its benefit.
Second Reason: Liquidity Creation Second, and most importantly, an ILIT that is structured properly provides liquidity. In an estate laden with illiquid real estate assets, an ILIT can be essential in order to pay a large estate tax bill without selling off assets. Consider the example of Robert and Sally Colmery. Over their lifetimes, Robert and Sally accumulated a small real estate empire throughout California, including a Palo Alto home ($3,000,000), a vacation home in Tahoe ($1,000,000) and three rentals in San Mateo (together worth $2,500,000). Robert’s liquid assets were mostly spent by the end of his life, amounting to $150,000. At the end of his and Sally’s life, $3,150,000 of the estate will be subject to the federal estate tax at a rate of 45%, and Robert’s and Sally’s children, Peter and Ruth, will not have sufficient cash to cover the bill unless they sell off some of the properties.
Now let’s assume that Robert establishes a qualifying ILIT with a second-to-die insurance policy naming his children, Peter and Ruth, as remainder beneficiaries, and pays the premiums by using his $13,000 annual gift tax exclusion. Robert structures the payment of premiums with the help of an attorney so that they do not trigger any gift tax by using something called a “Crummy” power. At the time of the second spouse’s death, the proceeds of the life insurance policy will pass estate tax-free. As a result, Peter and Ruth are not forced to sell off the real estate when they inherit.
Third Reason: Leveraging the Generation-Skipping Transfer Tax Exemption
Third, an ILIT can be used to leverage the insured’s GSTT exemption. Whenever we would like to give to our grandchildren or to individuals removed by 2 or more generations, the IRS imposes a second layer of tax called the GST tax. However, a $1 million exemption exists to which transfers to a trust can be allocated at the time of such transfer. If the amounts transferred to a trust appreciate, the ratio of assets exempt from GSTT to non-exempt assets will remain constant. As a result, if the entire transfer to the ILIT is allocated to the GSTT exemption (an inclusion ratio of zero), all GST tax can be eliminated at the final distribution, even if the trust enjoys considerable income over the years.
For instance, let’s say that Robert sets up a generation-skipping ILIT. The ILIT directs the proceeds from the life insurance to be invested in securities. All net income is payable to Peter and Ruth over their lifetime, with a remainder interest to Peter and Ruth’s children. Normally, Peter and Ruth’s children would be liable for GST tax at the maximum applicable federal rate when they take. However, if the ILIT is set up so that the inclusion ratio of assets subject to GSTT is zero, Peter and Ruth’s grandchildren will pay no GST tax. If ILIT assets grow at a modest rate, the grandchildren would take potentially significant amounts without incurring any additional GST or estate tax liability.
Fourth Reason: Protecting Beneficiaries from Creditors
Fourth, Robert can also protect his children and grandchildren from future creditors by including a spendthrift provision in the trust document and granting discretion to the trustee in giving distributions to the beneficiaries. If the ILIT is set up with investments or cash that Robert doesn’t need to access, the amounts can be shielded from Peter’s and Ruth’s creditors. Fifth Reason: Encouraging Responsibility
Fifth, while the ILIT is non-amendable, it can be structured so that beneficiaries are incentivized to engage in positive behavior. The trustee may be given directions to not make distributions until the beneficiaries reach a certain age, or unless they have demonstrated positive behavior. For instance, they can be directed to withhold funds that would pay for a drug addiction, gambling, or otherwise. The trustee can be directed to pay for the education, business planning, or other positive expenditures that the beneficiaries may require.
The settlor should be cautious when establishing an ILIT. Take note of the following caveats: (1) there must not be incidents of ownership by the owner / insured within 3 years of purchase of the policy; (2) The reciprocal trust doctrine may bring the proceeds of the policy back into the estate (i.e., when two spouses who set up life insurance policies on each other at the same time); (3) gift tax consequences may result with funded ILITs. Consider the use of the annual gift tax exemption with an un-funded ILIT. In conclusion, the ILIT is a powerful and cost-effective estate planning strategy. Often more attractive to individuals than strategies that require transfer of income-producing assets, the ILIT can ensure that estate taxes are paid; that beneficiaries are provided for according to the principal’s wishes; and that the GST, estate, or gift tax are reduced or eliminated.